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Buffett's Goldman Investment Is Locked In

Updated from 12:19 p.m. EDT

Warren Buffett's $5 billion investment in Goldman Sachs (GS - Get Report) is looking like a great deal for Berkshire Hathaway (BRK-A) shareholders - and one Goldman isn't getting out of anytime soon.

Rochdale Securities analyst Richard Bove argued in a report on Saturday that Goldman should pay back Buffett's investment ahead of the government $10 billion preferred equity stake, as the terms of his deal are more costly to Goldman shareholders. However, a Goldman Sachs spokesman pointed out that under the terms of the government investment through the Troubled Asset Relief Program, companies must pay back the government before they pay back other shareholders. That includes preferred shareholders like Buffett.

On Sept. 23, Berkshire Hathaway made a $5 billion preferred equity investment in Goldman paying a 10% dividend. As part of the deal, Buffett's company has the right to buy an additional $5 billion in common shares at $115 per share, below the roughly $129 a share the company's stock was trading for on Monday.

The following month, the U.S. government took a $10 billion preferred stake in Goldman yielding 5% under the TARP's Capital Purchase Program (CPP).

Bove on Monday issued a new note clarifying his views.

"The point still stands," Bove wrote in an email message to . "Also, the issue is the same -- do not dilute shareholders to eliminate TARP so that management can be paid more. Earn the money and then pay TARP back out of earnings."

First Niagara (FNFG) on Monday said it was issuing new stock to repay the government's $184 million TARP investment and several other small banks also have sought to get out from under the government's thumb.
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MS $22.94 1.20%
WFC $46.47 -0.06%
BAC $12.20 -0.57%
C $37.52 -0.77%
GS $147.47 -1.20%


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